Is Your 401(k) Plan IRS Compliant?

If you answer NO to any of these questions, you may have made a mistake in the operation of your 401(k) plan…

1. Has your plan document been updated within the past few years? If your plan hasn’t been updated to reflect recent law changes, the plan needs to be revised.

2. Are the plan operations based on the plan document terms? Failure to follow the terms of the plan is a common problem found on audit.

3. Is the plan definition of compensation for all deferrals and allocations usedcorrectly? Your plan may use different definitions of compensation for different purposes. It’s important that you apply the proper definition found in your plan document.

4. Were employer matching contributions made to appropriate employees under the plan terms? The plan terms must be followed when allocating employer matching contributions.

6. Were all eligible employees identified and given the opportunity to make an elective deferral? By supplying your tax advisor with information regarding all employees who receive a Form W-2, you may reduce the risk of omitting eligible employees.

7. Are elective deferrals limited to the IRC Section 402(g) limits for the calendaryear?Failure to distribute deferrals in excess of the 402(g) limit may result in additional taxes and penalties to the participant and employer.

8. Have you timely deposited employee elective deferrals?You should deposit deferrals as soon as they can be segregated from the employer’s assets.

9. Do participant loans meet the plan document and IRC Section 72(p)requirements?Defaulted loans or loans in violation of IRC Section 72(p) maybe treated as a taxable distribution to the participant.

10. Were hardship distributions made properly?If a plan allows hardship distributions, the plan terms must be followed.